Good morning, and welcome to Acuity Brands 2014 Conference Call, First Quarter Financial Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I would like to introduce Mr. Dan Smith, Senior Vice President, Treasurer and Secretary. Sir, you may begin.

Thank you. Good morning. With me today to discuss our fiscal 2014 first quarter results are Vern Nagel, our Chairman, President and Chief Executive Officer; and Ricky Reece, our Executive Vice President and Chief Financial Officer. We are webcasting today's conference call on our website at www.acuitybrands.com. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or future financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our most recent 10-K and 10-Q SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Now let me turn this call over to Vern Nagel.

Thank you, Dan. Good morning, everyone. Ricky and I would like to make a few comments, and then we will answer your questions. First off, our results for the first quarter of 2014 were just outstanding. Our net sales grew almost 20% this quarter, while our adjusted EPS grew nearly 40%, both first quarter records for Acuity. In fact, this was the third quarter in a row where we achieved double-digit sales volume growth. We believe this level of growth is, yet again, positive evidence our strategies provide our customers with differentiated value propositions and to diversify the end markets we serve are succeeding, allowing us to extend our leadership position in North America. These strategies include the continued aggressive introduction of innovative, energy-efficient lighting solutions; expansion in key channels and geographies; and improvements in customer service and company-wide productivity. Our profitability and cash flow for the quarter were, again, strong, even as we continued to fund our robust sales growth in areas with significant future growth potential, including the expansion of our lighting solutions portfolio. I know many of you have already seen our results, and Ricky will provide more detail later. But I would like to make a few comments on the key highlights for the quarter. Net sales for the quarter were $575 million, an increase of almost 20% compared with the year-ago period. Reported operating profit for the quarter was $77.4 million compared with $48.2 million in the year-ago period. In the current quarter, we received $5 million as a partial recovery for the fraud perpetrated by a former freight service provider to the company, for which we previously recognized as an expense in the third quarter of 2013. Also in the year-ago quarter, we incurred certain costs for restructuring actions and inefficiencies associated with a…

Thank you, Vern, and good morning, everyone. I will highlight a few items regarding our income statement, and then we'll discuss our cash flow and financial condition before turning the call back to Vern. Vern covered the primary drivers for our sales growth and our profitability, so I will not repeat these items, but I will provide a bit more color on certain aspects of our first quarter results. As Vern mentioned earlier, our fiscal 2014 first quarter results included an insurance recovery of $5 million pretax, or $0.07 diluted earnings per share, from the fraud perpetrated at a freight service provider to the company. As you may recall, we previously recognized an $8.1 million expense in the third quarter of fiscal 2013 related to the company's loss due to this matter. This payment covers a portion of the loss we suffered, and we continue to seek additional recovery of our loss. If we obtain any further recovery, we will record it when realized. These items are recorded within our selling, distribution and administrative expenses. Also in the year-ago quarter, we incurred certain costs associated with streamlining actions and inefficiencies associated with a plant closure, which, in total, reduced operating profit by $5.5 million or $0.08 per diluted EPS, with $4.8 million recorded in the cost of goods sold and the remaining $0.7 million recorded as a special charge. As Vern mentioned, we find it useful to exclude these items from our GAAP results to provide greater comparability and enhanced visibility into the company's results, and we have included in our earnings release a full reconciliation of our GAAP amounts to these adjusted results. Our gross profit margin for our fiscal first quarter was 41.3% and increased 90 basis points compared with the adjusted year-ago period on an almost 20%…

Thank you, Ricky. As we look forward, we continue to see significant long-term growth opportunities well beyond just the current year. With regard to our expectation for the balance of 2014, our view remains positive, which has not changed since our last quarter's conference call. So while we don't give earnings guidance, I would like to restate what we mentioned last quarter regarding our expectations for 2014. First, most economists expect that the economy in North America will continue to improve at a modest pace. While forecast for industry growth rates by independent organizations continue to vary widely, the consensus estimate is the broad lighting market in North America will grow in the mid-single-digit range for our fiscal 2014. Also, we see other signs that continue to give us optimism regarding the future growth of the markets we serve in our business. Leading indicators in the North American market, such as the Architecture Billings Index, vacancy rates, office absorption, lending availability and the rebound in residential construction, are all improving. I would also note we continue to be somewhat leery of the next round of uncertainty to come out of Washington regarding the debt ceiling discussions and monetary policy. As you know, the manner in how these key issues are resolved can influence business and consumer confidence. Nonetheless, we continue to expect that overall demand in our end markets for 2014 will continue to improve and be more broad-based and consistent than in 2013 but still with some volatility in demand among certain sales channels and geographies. The continued favorable trend in our order rate seems to support this level of improvement. Also, as a reminder, the second quarter for us is typically our weakest quarter due to the seasonal nature of the construction market, as well as inconsistent demand…

[Operator Instructions] Our first question comes from Matt McCall from BB&T Capital Markets. Matthew Schon McCall - BB&T Capital Markets, Research Division: So on that SG&A line, I'm just trying to connect all the dots and understand the expectations going forward, make sure I understand it. You've helped in the past -- I think Vern was providing kind of a fixed variable breakdown. But if you take into account your planned investments, you take into account the expected savings, and then as comps get tougher, I would assume maybe incentive comp eases a little bit, can you just give us some kind of idea about how you plan to leverage it as we move through the years maybe relative to what we've been told in the past?

So Matt, our incentive compensation programs are pure pay-for-performance. It's based on period-over-period performance. This quarter's results were, again, as you mentioned, great. They were just outstanding. And so based on -- it's formulaic -- based on the formulas that we have, and it impacts virtually all of the salaried folks in our organization, we essentially maxed out based on the performance. So when we think about our SD&A and the components of it, in the past, we have said that freight and commissions, together, kind of average around 11.5%. And it can vary depending on the mix, so on and so forth, but that's not a bad target number. The balance is -- it's not really fixed per se because, again, incentive compensation could vary. In the past, we have said that that number probably is in the 95-ish range. Given the outperformance this quarter and how we booked that, that number probably was near $99 million to $100 million total. The incentive compensation piece, if I back that out and look at the other components, the other components were up less than 2%. So we are leveraging our fixed, if you will, SD&A base. And the incentive comp is purely based on the outsize period-over-period performance. And so what I would submit to you is that management's desire is to continue to outperform and book at a higher level of incentive compensation. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay. Now that's helpful. And then, I guess, looking at -- you talked about continued strong trends into December. And I'm just curious, maybe stepping back and looking at the business overall, maybe even compare it to last cycle or look at trends more recently, but what -- are you seeing anything in the trends that says there could be incremental benefits on the margin front coming in the next couple of quarters? And what I'm getting at is you keep talking about the impact of mix and how projects are hurting mix. I'm wondering about the penetration of controls and how that's benefiting. And I'm just wondering about the trends with margins and what the patterns in your orders are telling you, if anything.

Well, as we said earlier, new construction for larger projects continues to be tepid, but yet the outlook by various prognosticators is very favorable. If you look at commercial construction, the expectation is quite, quite positive, if you look at manufacturing. Just as the economy improves, as overall employment improves, these areas are influenced by that. And again, the prognosticators really show favorable trends there. We continue to see smaller and medium-sized projects be even more predominant opportunity. Renovation still is a larger portion of the mix than, say, it has been historically. We're very excited about that continuing. And then you add on top of that the potential for growth in these more traditional areas of strength for Acuity, I think it creates a level of optimism internally that, to the extent Washington doesn't do anything that derails consumer business optimism, you can see later in 2014, '15 and '16, I think, a fairly robust opportunity, a growing market for Acuity. This is why we say we believe that our markets, our addressable markets, have the opportunity over the next 3-plus years to grow at very substantial rates. And we are uniquely positioned with our product portfolio, both of conventional lighting, LED components and other products that we sell, to participate fully in this. If I look at our business -- if you go back to the first quarter of 2013, you'll recall that it was a flat quarter. I think it was up maybe 1%. And the issue back then was debt ceiling, government shutdown, all sorts of issues that we think tempered business confidence. And so you saw that back then. But if I then think about second quarter of last year, 6% growth. If I think about the third quarter, 11% growth. If I think about the fourth quarter, 13% growth. We posted 20% this quarter, so potentially, the 20% was somewhat influenced by a lesser-than-robust first quarter. But our momentum in terms of our unit volume growth continues to build. And we are working hard to execute our strategies to outperform the markets we serve. Again, we don't have precise data on what our quarter did -- or excuse me, the markets did, but we, again, believe that we meaningfully outperformed what the growth rates would have been in our traditional markets. And I would say that our order rates for December were favorable and continue to suggest this improving condition of the overall markets. So I hope that gave you some context and backdrop. Matthew Schon McCall - BB&T Capital Markets, Research Division: Yes, it does. And forgive me, Dan, for the follow-up, but just from a mix perspective on the margin front as we look out, I know it's a long-winded question, but is there anything in the mix that could really benefit the margin? Or is it more leverage that we're going to be looking at and productivity gains and the like?

No, we said that -- this is Vern. We said that as our mix becomes more influenced by larger new construction projects, we anticipate selling a more broad-based portfolio, which tends to have a more rich mix. So those markets of new construction tend to pull all or a lot of our products, and we do well when that happens. I would point out that if you look at our gross profit margin on virtually the same level of volume compared to what we did in the previous fourth quarter, so sequentially, we added, what, Ricky, 40 bps?

40 basis points.

Of improvement in gross profit on essentially the same mix. So we're driving productivity, and we see out there, when it happens, we can't necessarily control that, a more rich mix of products being sold into larger new construction projects in addition to what we're doing on the renovation side. So I believe that that's robust.

Our next question comes from Jeff Osborne with Stifel. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Just 2 quick ones. In the past, there had been investor consternation with kind of the disparity or the perceived disparity of gross margins of LED products versus non-LED. I think the dramatic improvement you've seen over the past 4 to 6 quarters has kind of suggested that, that disparity may be -- or their concerns were unfounded or overstated. But is there a sense of perspective that you can give us for calendar 2013, the LED chip cost declines, how much that benefited your gross margin improvement versus some of the restructuring in utilization rates? I'm just trying to get -- if you can either rank order or dive specifically into the LED issue or perceived issue, if those things are kind of at parity now.

Yes, I'd prefer not to go there because the ability of Acuity, given its size and its opportunities, it may have a different ability, if you will, to source componentry at classes that are different than folks that don't have our size, scale and capability. We will say that LED components continue to decline. The pricing of LED luminaires continues to decline. And as Ricky has pointed out in the past, that simple math allows for improvement, if you will, in the gross margin percentage on those products. I think that it is, again, very interesting to note, to your point, people in the past have assumed or made some assumptions that LED components -- excuse me, LED luminaires have, in general, lower margins as a percentage. We have said and have consistently said that our margins for similar products are in the range. And I think it's bearing out that we have the ability to continue to improve margins while LED fixtures are becoming a more and more meaningful percentage of our total. We're now over a quarter of our total revenues. So we have other items in there other than just luminaires, now LED-based luminaires, and yet our gross profit margins continue to improve. So I think that for Acuity, we've been able to debunk, if you will, the notion that somehow, LED products, in general, have a lot lower margin profile. An individual product may or may not, but that's true in, really, any product.

Jeff, on the streamlining benefits, the savings there, the $3 million, we did recognize $3 million this quarter improvement as a result of those actions that we took late last year. About 75%, 80% of that is in the SD&A line. The remainder is in the cost of goods sold line. So there are some benefit there and then productivity gains as we leveraged the volume on our fixed cost, as well as just continuing our lean journey. And improving our supply chain cost factor has also enabled us to improve margins. Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division: Excellent. And the last question is just on the -- going back to the LED side again. Could you just, generically, talk about where you would perceive, in calendar 2013, you're the strongest, whether it's indoor, retrofits or outdoor residential? Where would you kind of rank order in hindsight where you've had the most success through the year and where you see some opportunities for growth in 2014 and '15?

So Acuity is the North American market leader, both in indoor and outdoor luminaires. And we believe that the adoption rate of LED for certain applications, Outdoor is probably a little bit ahead of Indoor. Indoor, primarily on the Renovation side. So we have -- we believe we're in the very, very early innings of the adoption of LED into that commercial office space, and that's a big wheelhouse for Acuity. So we would look to really leverage growth there and continue to leverage our product portfolio in both Indoor and Outdoor. When we look at markets, commercial, industrial, infrastructure, the Outdoor, Indoor and Outdoor have done very, very well for us, and we expect that to continue.

Our next question comes from Jed Dorsheimer from Canaccord.

I guess, Vern, first question. Just with respect to the TAM, you've talked about sort of the -- your business in the downturn, the total addressable market sort of being around that $10 billion number. As you added the controls, sort of adding $500 million to another $1 billion, and then as new construction comes back, seeing that sort of $10.5 billion to $11 billion over the next several years kind of growing to that, I think it was $15 billion, $16 billion level. So I was wondering if -- as your results in the second half of '13 have seen a marked increase -- or for most of the year, actually, how much you attribute to new construction versus renovation and where we are in that, where you see the total addressable market right now. And then I have a follow-up to that.

So Jed, for us, we guesstimated that for fiscal 2013, our addressable market was roughly a little less than $13 billion. And so you can pick any time frame you want, but where we see growth coming from is continued renovation. If you look at the installed base here in North America, what is it, 100 billion square feet of installed building space, 70% of which was put in place before 1990. If you then further assume $2 a square foot for lighting, another $0.50 a square foot for controls and lighting solutions, it's a $250 billion market that converts at a very slow rate. So Renovation and people who are getting after that market due to energy savings but better quality of light in those spaces, it can convert faster, the better we're able to get to those types of folks. So that pond will allow us the opportunity for growth. Put on top of that now us rebounding, albeit at a slower but yet increasing rate for new construction, it's a pretty solid performance. I believe that you have seen that others -- we have a chart that shows, on an inflation-adjusted basis, what the nonresidential construction market looked like. It peaked in 2008, and it declined about 35%. It's come back about 5 points. So it's still off on an inflation-adjusted basis from its peak. We expect that to now start to come back. So not only do you have the benefit of new construction, but we also believe that we will be selling more value per square foot, don't have precise numbers around it, as we get more and more into fairly sophisticated lighting solutions to take advantage of daylight harvesting to actually generate energy savings while you're using the space. So these are some of the attributes or some of the drivers that we see pushing the market to potentially 50% higher over the next 3 to 4 years as we look forward.

It's sort of a great segue into my second question, which was going to be around -- you're seeing 25% now with LEDs. And if you go to that digital control, I would assume, but I'd like you to comment on this, that the controllability starts to become more important. So can you break out sort of that controlled aspect or what percentage of your business now versus maybe a year ago you think you have a much better shot on goal in terms of adding the controls features to maybe systems versus just a standalone device?

Sure. If you -- first of all, our LED sales are more than 25%. I just want to be clear on that. They're not at 25%. The notion of lighting solutions and controls, if you sell an individual control device, sure, you can measure that. But more and more, with LED-based luminaires, virtually, all of our LED-based luminaires has some level of control embedded in it. The level of sophistication, what it can do, so on and so forth, how it interfaces with other luminaries as part of the lighting system and how that ties into building management, those are all different levels of sophistication. It is becoming impossible for us to say, that luminaire, which has a value proposition, is the value proposition and the price, is it because it has embedded controls or is it because it's LED? We don't even go there with that, Jed. It's just -- it's too hard. So what we believe is that these luminaires for a like kind compared to, say, conventional lighting, have the ability to have higher prices, and it depends, it's all over the map, based on the value and the level of control and what you're attempting to do with it. At the most sophisticated level, where it's tied into daylight harvesting and the ability to feed that back into building management systems, the system with the quality of light that we provide, the ability to have it be modular so you can upgrade it, all of these things are wonderful value propositions. And we sell that value. We're in a bid business, but we sell that value. And obviously, the growth rates that we have in our LED-based luminaires, which are way above the rest of the industry, are because we offer the full range of features and benefits.

Our next question comes from Peter Lisnic from Robert W. Baird. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Vern, a couple of times, I think, and in the Q, you've mentioned that you've got some under-penetrated opportunities. I was wondering if you could give us a little bit of color on what those might be without obviously getting in the competitive specifics. But if you're growing volume, it's something around 20%. You still got opportunities out there. Can you give us a little bit of insight as to where those might be, whether those are markets or geographies or technologies and then tie in just the -- the balance sheet being in a net cash position gives you a tremendous amount of flexibility. So if you can maybe add that into the commentary as well, that'd be very helpful.

So in 2013, we generated $2.1 billion of revenues against a total addressable market of a little less than $13 billion. So until we get to $13 billion, I would say that our opportunities continue to be fairly robust in all areas. And I'm being a little facetious with you. But we see opportunities to expand our product portfolio of good, better, best. We're the market leader in both indoor, as well as outdoor, but yet we see just significant opportunities to add features and benefits, real value propositions to the customer base to allow us to gain share. And I would say it's across the board. And we're only limited by our own creativity and our own ability to create solutions that our customers are willing to buy. And it's not just products and solutions. If you're a contractor, it's how well can you serve that contract or how can you bring value to them to make them even more efficient. So when you think about how we bring luminaires and controls and that whole package as a solution, making it simple, plug and play, easy to install, easy to commission, all of these features and benefits have real meaning and real points of differentiation. So our investments going forward continue to be in the area of being -- of taking very sophisticated technology and making it smart and simple for people to use and install. And we believe that that's a point of differentiation that will allow us to gain additional share as we go forward. When I think about our primary channels, we sell through 14 different channels, the broadest in the industry. And if you look at -- geographically and then you look at channels, we had good growth that was broad-based, and that's what gives…

No, Pete, I'm not going to comment on what our strategy will be relative to that. I will comment on our overall pricing strategy, and we are very focused on what the value proposition we can bring to the market and how we price that. Most of what we do is a bid, and so we're looking to sell features and benefits and extract the value for our shareholders but providing real value back to the customer base. And so all of us are, and when I say us, I mean Acuity, are looking at where can we extract that value, where do we need to push price into the marketplace to help us preserve and enhance our margins. So we are looking at that every day. And costs ebb and they flow, and we have to be sensitive to that. We are aggressive pricers in that we will push price up to the extent that we can add value to our customers. So I realize that some have come out with price increases. I can't comment because I don't know what their motivation was. I can tell you that we look at our pricing strategy, literally, monthly and even more than that. And in instances where we are bidding, we're pushing our prices in a way that allow us to really sell value to the customer and improve our margins. When you look at our margins at the gross profit level, we're improving those margins on similar mix. So we're very aggressive in terms of how we work our cost structure and very aggressive on how we sell our value proposition to our customer base.

Our next question comes from Jagadish Iyer from Piper Jaffray.

Two questions, Vern. First, when you talked about TAM, you talked about the gross margins for the LED side versus the non-LED portion. So how should we be thinking about it as we look at it 12 months from now in terms of how the gross margin profile, at least qualitatively, how should we think about it, given that there is going to be some formidable players going to be aggressive on this LED lighting? And then I have a follow-up.

Well, the most formidable player is Acuity in LED lighting, so let me just be clear about that. We continue to expand our margins. I think that this quarter was reflective of margin expansion, again, $575 million. If you look at our just previous quarter, our fourth quarter, we did $580 million, so call that the same. We added 40 basis points of margin improvement, and yet we continue to grow our LED-based business. In truth, we do not look at -- we don't look at LED versus non-LED. We look at the application. We look at what the customer is trying to do, and we sell from a full wagon. We are not trying to push one versus the other. We're trying to push the right solution and provide the right solution to what the customer is trying to do. We believe that LEDs will continue to be a growing and more meaningful part of the business, and we are pushing that hard because it provides customers, in many instances, with a better value proposition. So we're listening to them. I think that what you can see from the expansion in our margin from fourth quarter -- at gross profit margin from fourth quarter to first quarter is a continued reflection of how we bring that value to the customers, how we price that into the market, that value proposition into the market, and how we continue to use, as Ricky pointed out in his comments, lean and other capabilities to drive productivity throughout our business. So I said earlier that we would expect our gross profit margins to, over time, continue to expand as we drive productivity, as we bring more value-oriented products to the marketplace, including lighting solutions, which are, again, sophisticated systems that are smart and simple for end users to use. And we believe that will continue to also enhance our margin profile over time.

Okay, that's helpful. Second, as a follow-up, I just wanted to understand. You did talk about some pricing pressure. I just wanted to find out, was there anything abnormal in the LED channel versus the traditional one?

I would say pricing is very local, project-specific, so on and so forth. And I would say that the answer to that would be no. We don't see a differentiation necessarily between conventional and LED. We just see in local situations where that job, that project, that local influence, whatever it may happen to be, that local competitive dynamic. And I think that that is not atypical in our industry.

Our next question comes from Rich Kwas from Wells Fargo.

Vern, just -- I know you talked to the lack of a sequential decline sequentially or from quarter-to-quarter here in terms of revenues. And is there anything special here that hit this quarter, where there was some project activity that really benefited you? Or did you notice any prebuy activity? Just curious to see if we should be aware of anything that was noteworthy on that end this quarter.

No. I believe that it began as a continuation of how we have been executing our strategies around our product portfolio, around providing value into the various channels and just continuing to execute pretty well along providing the right solutions to customers in those channels and in those geographies. I can't think of anything that was uniquely special or large when we think about our business. It's so broad-based, and it touches so many portions of the North American market that any one big job wouldn't necessarily influence the overall revenues. And that wasn't the case this quarter.

Okay, all right. And then on the gross margin, a couple of quarters ago, you talked about the renovation activity being a -- having a dampening impact and whether it was the kind of the base fluorescent business and kind of the jobs that were less customized. And you had a nice uptick in the gross margin this quarter, and you seem a little more optimistic about gross margins getting better sooner than maybe what was perceived a couple of quarters ago. Is this -- I imagine the construction piece, and you talked about kind of tepid growth there, and that's a potentially a big driver to your margins in the intermediate term. But what's really changed there on the margin side? Because that's one of the things that I noticed here in this quarter aside from the top line as being definitely much better than expected. So any color there would be helpful.

Sure. We believe that the mix this quarter compared to, say, the sequential fourth quarter is probably around the same. But we continue to drive productivity into our business. Our teams on our supply chain side are doing a great job. We're very focused around that. We really work hard to sell the value proposition of Acuity. We don't lead with price. We lead with features and benefits and solutions and service. So we continue to work that as part of a process, and I think we're always continuing to improve how we sell our value proposition to our various customer base. But we're working hard to continue to improve that top line and to improve the mix of our business. So while the mix didn't change materially this quarter, we see, as we look out forward, that mix improving. When does the commercial market start to improve, where it's no longer tepid, where we're actually seeing some growth? Again, whether it's a Dodge or a Global Insight or some of these other forecast companies, they have a fairly positive view of what the next 3 to 5 years look like in these key verticals where Acuity has traditionally really applied its strength and its broad value proposition. And we sell a more fulsome amount of our product compared to certain renovation projects, where it may be a single-type fixture, or only a few fixtures, where the competitive nature of the marketplace just says that the pricing on those things is going to be much more exposed than a full package would be. So our enthusiasm around margins on a go-forward basis, and I'm not talking about next quarter or the quarter after that, I'm talking about over the next 1,000 days, as these markets potentially come back, we think we're positioned well, both with our portfolio, our access to market and our complete value proposition to extract improved margin and extract value there.

Okay, that's helpful. And then just one last quick one for Ricky. The $3 million of savings, did that fully flow through this quarter, or was there some offset in the SD&A line with spending? And then with the remaining, once you hit the annualized rate, the earlier or, I guess, last quarter, or the quarter before, you've discussed about some offsets. And I know you've mentioned that earlier in the call, but I mean, should we think of that as there's going to be some spending here and is that full $50 million is still not going to be -- not going to completely flow through? Is that still the right assumption?

That is the right assumption. We continue to make investments or increase our spending in areas of sales and marketing support and so forth. So we're reinvesting some of these savings back into our SD&A cost. So while we've realized all of those savings, we are consuming some of those. As Vern commented on, as wage inflation, the cost of health care, the incentive comp, as well as we add more support capability, marketing capability, to continue to drive this growth, we will consume some of those savings in those endeavors.

And some of that hit -- some of that $3 million was absorbed in the initiatives, right, in the quarter?

Right, absolutely.

Again, just to further comment, our quarter was an exceptional quarter on a period-over-period basis. So the way our incentive systems work and the 3 key areas are earnings growth; quality of earnings, so improving our margins; and cash flow. And they're split 1/3-1/3-1/3 in terms of incentive compensation. And we were at the upper end of our performance grids in that. So we improved total operating profit margins by 140 basis points while funding a meaningful difference in incentive compensation. So for us to continue to accrue at that very high rate would require us to perform at this type of level of performance. We're not predicting that. We're not forecasting that, but we, as a management team, are incented to deliver that.

Winnie Clark from UBS, you may ask your question.

You did talk about looking at disciplined M&A, but I was curious, you continue to have a very strong balance sheet that's strengthening further. Are you thinking any differently about capital allocation broadly at this point?

Ricky?

Not really. If you look back historically at how we've allocated our capital, we've returned about half of our free cash flow to shareholders in the form of dividends and stock repurchase. We've spent about 1/3 of our free cash flow on acquisitions. And then the remainder, we've used for our own internal capital expenditures for organic growth. That mix isn't going to stay exactly that every quarter every year, and it's hard to predict on the M&A side. If we look at the priority, M&A would be our -- organic growth, of course, we're going to continue to do that. And then M&A, as Vern mentioned earlier, though, we're going to be disciplined about that. But you've seen us do 2 or 3 acquisitions in almost each of the last 5 years, some of them bigger, medium or much smaller. But I think you will continue to see us looking there. If we don't see the opportunity on the M&A and all, then we'll continue to look at ways to be shareholder-friendly in that and return it to shareholders in the form of repurchase of shares and the dividend.

Great, that's helpful. And then I was curious, I know you don't give forward guidance, but some companies have talked about weather and holiday timing in December and January being -- having a negative impact on their business. And I'm curious, as we think about 2Q, is that something that we should potentially consider as we adjust our models going forward?

No. For us, we have seasonality in Q2. It's historically our lowest quarter in terms of top line. But no, we don't think that the cold snap-- while, unfortunately, Ricky's pipes in his house burst, his lighting is fine. So we don't think that that is going to influence our second quarter one way or the other at this stage.

I would like to turn the call back over to Mr. Vernon Nagel for closing remarks.

Everyone, thank you for your time this morning. We strongly believe we are focusing on the right objectives, deploying the proper strategies and driving the organization to succeed in critical areas that will, over the longer term, deliver strong returns to our key stakeholders. Our future is very bright. Thank you for your support.

This concludes today's conference. Thank you for participating. You may disconnect at this time.